This model focuses on the study of the competitive influences or ‘forces’ on a business.
When we discuss competitive factors on a firm, we usually consider other firms within the same industry selling similar products. [1] and although it is true that other firms in the same industry present competition, Porter challenged this over simplified view by considering other forces that will also affect the firms competitive ability . The diagram below highlights the 5 main forces.
2. Potential Entrants into the market
This force is concerned with the new firms that may try to enter the same market thereby creating more competition. If a firm anticipates this happening, it may try to raise the barriers to entry, in other words, try make it difficult for new firms to enter their.
What barriers may a firm use and why may governments try to stop the barriers to entry?
3. Technical Threat with Substitute goods
This is a different threat from those firms selling similar goods as it’s a threat that comes for firms selling alternative/substitute goods. Technology for example has enabled us to use phones to take photographs and this has presented a huge threat to firms producing and selling cameras and camera related products. It is important for a firm to look substitutes and not just similar goods.
What substitutes may exist for a restaurant that could impact its sales?
The Essay on Competitive Forces Substitute Product
In his book Competitive Strategy: Techniques for Analyzing Industries and Competitors, Michael Porter discusses five forces that drive competition within every industry and every market. The forces that he identifies are: the threat of entry by new competition, the intense rivalry amongst existing competitors, the threat of substitute products, the bargaining power of suppliers, and the bargaining ...
4. Bargaining power of suppliers
The power of suppliers will be able to in turn influence the competitive ability of a firm as they will be able to influence the amount and reliability of suppliers as well as the cost if the suppliers. The fewer the number of suppliers the more power the suppliers would have. For example in the micro chip market there are 2 main suppliers, Intel and AMD. These 2 suppliers can make decisions that will in turn influence the competitiveness of the firm. If the suppliers impose penalties and costs when a firm changes over, this too will impact the competitive ability
5. The bargaining power of the buyers
Buyers/customers have enormous control over an industry when there are lots of similar and/or alternative goods. Because they can move from one firm to another. If the industry makes it easy for customers to switch to other firms then this also gives the customer more power.
The Government introduced a rule for the mobile phone industry that makes it easier for customers to change from one provider to another? What was this rule? What have mobile companies done to try reduce this movement between providers?
